Analysis by an industry leader has examined how the type of borrower affects the likelihood of a mortgage default

We are asking the wrong questions when it comes to tackling housing affordability in Australia, the chief executive of a major mortgage franchise has claimed.

Speaking at a media event held last week, Mortgage Choice chief executive officer John Flavell said discussions about housing affordability have been clouded by rhetoric around rising house prices and rising debt. However, while Flavell admits the housing market has been heated, he says we should not mistake this for the real issue in relation housing affordability.

“We have talked about housing affordability for people with mortgages and it is definitely difficult to get hold of an opportunity in the market. Property prices across the nation have gone up – they went up last year by 10.4%... And of course, that means the debt has gone up too. Two years ago the average home loan in Australia was $298,000. It is something like about $352,000 now,” Flavell said.

“So house prices have gone up and debt has gone up, however, in 2011 the proportion of the population with a mortgage who were dedicating more than 40% of their income to servicing that mortgage debt was 40%. We come forward to 2015 once the debt has gone up and the price of property has gone up and it is less than 25% of the population with a mortgage that are spending more than 40% in terms of servicing that debt.

"So it is actually more affordable now for people with mortgages than it was a number of years ago.”

According to Flavell, discussions about housing affordability in Australia need to focus on renters rather than homebuyers.

“So housing affordability for whom? Heaven help the renter! There is absolute constriction in relation to investment borrowing because we have a banking system that is running crazy and we need to stem it and squash investment lending,” Flavell said.

“Residential vacancy rates across the Australian capital cities are, on average, about 2.1% within a 25km radius of the CBD… If you were to go to the suburbs surrounding Sydney on Saturday morning and you look at the open for inspection signs for properties to rent there would be queues of younger, middle-aged and older people going out the door. They would be running around with application forms and if the price is ‘x’ they would put a little bit on top of it because they don’t want to miss out.

“If we look at our seven capitals including the ACT, of those seven capitals then there is four of the seven where the price of rent is considered to be moderately to extremely expensive – and that is that they are spending more than 40% of their income on rent.

“So housing affordability for whom? For the renter there are all sorts of issues. The government at the moment is doing all sorts of things to constrict supply and is not helping.”

COMMENTS

by MCL17/12/2015 9:42:00 AM

Best argument i have heard yet, well done John for putting it out there.